Comprehensive Income vs. Other Comprehensive Income: An Overview

In financial accounting, corporate income can be broken down in a multitude of ways, and firms have some latitude on how and when to recognize and report their earnings.

To compensate for this, the Financial Accounting Standards Board (FASB) has firms collect and report information using certain universally recognized measurements to help provide perspective for investors and analysts and report them on financial statements.

Two such measurements are comprehensive income and other comprehensive income. Though they sound similar, there are certain differences, primarily in the level of detail they provide into a company's financial situation.

Key Takeaways

  • Other comprehensive income items occur rather infrequently for smaller businesses, so it is most important for valuing larger corporations.
  • Unrealized gains and losses from assets are the primary representation of other comprehensive income.
  • Other comprehensive income might show how the unrealized performance of a firm's investment portfolio can reveal the possibility of major losses down the road.
  • Comprehensive income is the sum of regular income and other comprehensive income.
  • A more complete view of a company's income and revenues is shown by comprehensive income.
  • Comprehensive income is used to chart the changes in the overall net assets of a company; by doing so, it marks the change in the value of an owner's interest in a business.

Comprehensive Income

Comprehensive income is more of an umbrella term—and in fact, an umbrella statement. Comprehensive income consists of two sections:

  • The net income from the income statement
  • The net income from the other comprehensive income statement

The sum total of comprehensive income is calculated by adding net income to other comprehensive income.

Comprehensive income includes realized and unrealized income, such as unrealized gains and losses from the other comprehensive income statement, and therefore is a more detailed view of a company's net income, which is not fully captured on the income statement.

Certain assets can increase or decrease in value, which is shown on the cash flow statement, but the impact on earnings is shown in other comprehensive income. Therefore, comprehensive income takes regular income and adds other comprehensive income.

Other Comprehensive Income

Also known as comprehensive earnings, this is a catch-all classification for the items that cannot be included in typical profit and loss calculations because they do not stem from the company's regular business activities and operations. Hence, they have to bypass the company's net income statement—the sum of recognized revenues minus the sum of recognized expenses—which does include changes in owner equity.

Other comprehensive income is not listed with net income, instead, it appears listed in its own section, separate from the regular income statement and often presented immediately below it.

More specifically, other comprehensive income charts the change in a company's net assets from non-owner sources over a certain time period, including all revenues and expenses that have not yet been realized, such as a capital gain or loss from an investment that has not yet been sold. (Once the gain or loss is realized, the amount is reclassified to net income.) Other examples of the types of changes captured by other comprehensive income include:

  • Gains and losses from derivative instruments
  • Unrealized gains and losses from debt securities
  • Pension or other retirement plan gains and losses
  • Foreign currency transactions
  • Available-for-sale securities unrealized gains and losses

In regards to taxes, it is permitted to report other comprehensive income after taxes, or one can report before taxes as long as a single income tax expense line item is included at the end of the statement. Conversely, this can also apply to a tax benefit.

Special Considerations

When preparing financial statements, it is important to realize that other comprehensive income cannot be reported on the income statement as dictated by accounting standards. Other comprehensive income is accumulated and then reported under shareholder's equity on the balance sheet.

When an asset has been sold, and therefore there will no longer be a fluctuation in its value, the realized gain or loss from the sale must be transferred from the balance sheet to the income statement. Other comprehensive income will then be transformed into regular income.